Credit cards are a valuable way to make purchases and function in today's world. They are very useful to smooth one's cash flows, and allow easy access to car rentals, booking hotels, and making purchases over the internet. Credit cards also provide protections to the cardholder that are not available to debit card users. When debit cards are used, the funds are withdrawn from a cardholder's checking account on the day of the transaction, while with a credit card there is the financial protection of a built in “layer” associated with transactions. This protection takes the form of a statement which is transmitted to the card holder before they must pay for the transaction. In this way, a customer using a credit card doesn't run the risk of over-drafting their checking account because of unexpected or unaccounted-for debits to their account including fraudulent transactions. Unexpected or unaccounted-for debits to a user's checking account can have a domino effect of financial headaches and can tie up funds, leading to the decline of legitimate charges which cause overdrafts. Another significant benefit of a credit card over a debit card is that the user's payment history is reported to various credit reporting agencies. When properly utilized, credit cards can increase a user's credit score. This benefit can help lower other borrowing costs for a consumer. For instance, if one doesn't have a credit score or has a low credit score and attempts to purchase a car, the interest rate charged will be significantly higher than if one has established a positive credit score by utilizing a credit card. However, in order to obtain a credit card from most banks, one has to have a credit score to begin with or not have a low or “sub-prime” credit score.
While very valuable, an improperly managed credit card can easily saddle consumers with high interest debt, preventing them from using their money in other ways. This is one reason some people use a debit card; to prevent themselves from incurring debt. Many people have a job and have a checking account and utilize a debit card associated with their checking account. When they receive their wages and have money in their checking account, they make purchases with a debit card. This debit card usage is not reported to the credit agencies and the user's credit score does not reflect this usage. What would be better is for the consumer to utilize a credit card and pay their credit card bill when they get paid, without incurring long term debt. However, without a high enough credit score, obtaining a credit card may be difficult.
One reason banks require a “positive” credit score is related to the requirement that credit card users be provided with advance notice before their payment is due. While many people get paid weekly or bi-weekly, banks issuing credit cards are only allowed to bill a customer once a month and they must provide 21 days for the customer to pay their bill before they can accrue interest if their previous bill has been paid in full (unless they don't provide any grace period on interest in the first place and few banks do this).